Economist Chris Barrett asserts that markets can pull billions of people permanently out of poverty

For Chris Barrett, Cornell professor of applied economics and management, finding a way to end persistent global poverty is deeply personal.

"If my five kids were a random sample of children around the world, three of them would be living in grinding poverty; one of them would have died by now," says Barrett. "Each day, 15,000 children die unnecessarily of hunger-related causes in a world of plenty. ... Why are 1 to 2 billion people unnecessarily and disturbingly trapped in extreme poverty?"

For Barrett, the solution to ending poverty lies at the confluence of policy, technology, markets, risk management and finance in order to create partnerships to leverage markets and technologies that improve productivity and quality of life. For starters, he argues that although well-designed aid delivers very high returns, too many U.S. taxpayer dollars are wasted. For example, the law currently requires that all U.S.-funded food aid purchases be American-grown and American-processed commodities; 75 percent must be shipped on American-flagged vessels.

Because of this, a school meal program in Malawi cost three times more than necessary because food was purchased and shipped from America, despite a bumper crop of maize in the Malawi region.

"If we could just purchase the maize in Malawi, we'd be reaching a lot more kids and stimulating the local economy by supporting the local farmer. It's truly crazy that we can't," says Barrett, who proposes a new food aid strategy based on rapid responses to disasters that might otherwise knock people into poverty. Working with, rather than against, markets and improving agricultural productivity are central to this strategy.

Improving technology and taking risks

Many farmers in the developing world, Barrett says, don't take the risk of adopting new technologies because they do not have such safety nets as health, home and unemployment insurance.

"Poor people are that much closer to the 'tipping point' where, if they cross it, they collapse into grinding poverty, and it's very difficult to come back," says Barrett. "So they trade high risk and the potential for high returns for low risk and low returns. But low returns mean you're not going to earn very much. You choose not to gamble on this slightly riskier but potentially very high-return farming method because it risks your and your children's future."

Barrett suggests leveraging resources in the private sector to provide funding that can help the poor withstand a natural disaster, implement new technology or get an education. For example, he and colleagues are exploring the use of weather insurance or catastrophe bonds for famine prevention, to pre-finance emergency response before disaster occurs.

If slow-onset disasters are foreseeable, then global financial markets can offer a promising new way to finance emergency response. For example, in northern Kenya, experts can predict widespread severe child malnutrition with 75 percent accuracy three months in advance.

"The key is rapid response. Today, the average lag from the call for help to a food aid delivery is four to five months. Delays kill, and we know that costs increase sharply as a disaster progresses," Barrett says.

By having financing in place ahead of time, response can be more nimble, costs can be kept down, and more people can be helped. In Niger in 2004-05, for example, an appeal for $9 million went unheeded when a drought and locust infestation threatened crops. After six months it was a full-fledged emergency that needed a $30 million response.

"If you can establish the probability of an event happening and how correlated this is with other events, the money can be mobilized," Barrett says.

Such investments as catastrophe bonds are potentially attractive to people looking to reduce the overall risk in their portfolio, he says. And it provides a new source of funding aid to developing countries.

"We have to start making markets work for the poor," Barrett says.

Despite current inefficiencies and waste, Barrett remains an optimist. "If we've gotten 20 percent of the world's poor out of poverty already and another 30 to 50 percent is well on its way out, it's clear that we're heading in the right direction."

The poverty trap

"A large percentage of the world's population remains mired in grinding, long-term poverty that is passed down like a family heirloom from generation to generation," explains Barrett.

Most improvements in the human condition have been ignited by improvements in agricultural productivity due to improved technology and markets, but poor people can't invest much because they have to spend the vast majority of their income on basic sustenance.

"Getting out of poverty requires investment -- in technologies, markets, capital -- so what do you do? The same model that brings talented, disadvantaged American teens to Cornell is what we should see in Africa. Discounted lending, outright grants -- well-targeted assistance enables students in the United States to build up valuable human capital, and the same approach can make a difference to the poor elsewhere in the world, too," Barrett says.

Although aid has historically yielded low returns, we can learn from our mistakes.

"Just because your crazy Uncle Morty lost a bunch of your money in the stock market doesn't mean you should never invest again; it means invest differently," he says with a laugh.

Aaron Goldweber is a communications specialist in the College of Agriculture and Life Sciences; this article is abridged from a recent issue of the CALS News.